Monthly Archives: June 2012

American Airlines announced Friday afternoon that it has agreed with the unsecured creditors’ committee appointed in its Chapter 11 case to jointly seek to extend the exclusive period during which only the company can file a reorganization plan through Dec. 27.

The company did not state whether it would also seek to extend the corresponding exclusive period to solicit acceptances to its plan, but such a period typically expires two months after the plan-filing period. For American, that would translate into an extension of the exclusive solicitation period through Feb. 27, 2013.

The company’s current plan-filing exclusivity does not expire until Sept. 28.

The company provided no additional information, and as of this afternoon, the motion has not yet been filed, according to the court docket.

As the company continues to seek to negotiate new labor agreements with its unions, the maintenance of exclusivity will be key to holding off an unwanted takeover from US Airways while in Chapter 11. US Airways has talked up a merger with American that can bring the company out of Chapter 11, while American has insisted it wants to reorganize pursuant to a standalone plan, but that it would consider a merger once it is out of bankruptcy court.

As reported, US Airways has already reached agreements with the three unions – the Allied Pilots Association, the Professional Flight Attendants Association, and the Transit Workers Union – that represent some 55,000 American employees that would kick in if a merger takes place. But US Airways’ hands are tied as long as American has the exclusive right to file a reorganization plan.

The deal between US Airways and the three American unions has been generally seen as providing all parties with additional negotiating leverage, with American squeezed in the middle. Over the past week, however, that landscape appears to have, if not quite yet changed, shifted slightly. American now has a “tentative agreement” with its pilots union that has the approval of the APA board of directors, with the union’s membership slated to vote on the new pact by Aug. 8. Meanwhile, additional talks are scheduled next week between American and the APFA and TWU, and American has signaled that it has some flexibility when it comes to demanding concessions from its workers, although it is unclear whether this flexibility is enough to meet the unions’ respective demands.

Still, now that the company’s pilots have been offered a 13.5% equity stake in the reorganized company, APA president Capt. David Bates noted earlier this week that the company’s value – and thus the value of the pilots’ stake – would increase whether the US Airways merger were to occur before or after American’s emergence from Chapter 11.

That appears to have raised some questions about the APA’s commitment to its agreement with US Airways.

“We’ve received questions from some about whether APA continues to support a merger between American Airlines and US Airways in light of the tentative agreement,” the APA said in message last night to members. “To be clear, the APA leadership remains convinced that a merger of the two carriers would create a stronger, more competitive American Airlines, and that our future career prospects will be brighter than they would otherwise be under AMR management’s stand-alone plan. Our support for proceeding with the merger is undiminished.” – Alan Zimmerman

Petroleos Mexicanos, better known as PEMEX, earlier this week, sold two sets of senior unsecured 10.5-year bonds, guaranteed by the Export-Import Bank of the United States (Ex-Im Bank), sources said. On Tuesday, the $400 million of 2% notes due Dec. 20, 2022 priced at par, at a spread of MS+88.66. And yesterday, the $400 million of 1.95% notes also due Dec. 20, 2022, priced at par, at a spread of MS+86.9.

The Ex-Im Bank authorized $1.2 billion in export financing, which will take place in four transactions, to support the export of U.S. goods and services to PEMEX.

“For the first time, Pemex will offer Ex-Im-guaranteed bond issuances to capital markets to fund the transactions. Pemex anticipates four-to-seven bond offerings that will occur from June to September 2012. In the event the funding cost is prohibitive, Pemex may exercise the option to seek Ex-Im direct loans,” Ex-Im Bank said in a press release earlier this week. “Pemex ranks as Ex-Im Bank’s top borrower. Since 1998, the Bank has approved approximately $10.6 billion in financing to support Pemex’s activities in the oil and gas sector.,” the bank noted.

Washington D.C.-based Ex-Im Bank operates as an export credit agency, which provides guarantees of working capital for U.S. exporters.

PEMEX, a crude-oil and natural-gas company, is majority owned by the Mexican government. Terms:

Yankee loan and bond activity is on the move again as the second-quarter of the year comes to a close. On the loan side, BSN Medical, Kloeckner Pentaplast, and Fresenius are all tapping the U.S. and European markets, while STS, a division of Stork, is pre-marketing on both sides of the Atlantic for an upcoming high-yield issue.

During the first half of the year, a total of €13.41 billion of loans from Europe-based borrowers was placed into the U.S. leveraged loan market. This yankee loan total is double the €6.72 billion issued into the U.S. during the whole of 2011, and well ahead of the 2010 total of €7.86 billion (the 2012 total excludes the cancelledFormula One refinancing that launched in May, but was cancelled in June – including that deal, the volume would have been €14.8 billion).

In the year to date, 47% of all loans issued by European borrowers came from the U.S. By comparison, in the two previous full years yankee issuance made up roughly 15% of total issuance – demonstrating the sudden increase in Europe’s reliance on U.S. buyers to get deals done. – Ruth McGavin

The individual mandate will be upheld as a tax under Congress’s power in the Taxing Clause instead of a penalty in other clauses, while the expansion of Medicaid was ruled constitutional, even though the court ruled states cannot be stripped of funds for not complying.

As LCD reported earlier this month, restructuring firms and credit investors have been taking a close look at how the system as a whole and the credits within that system could be affected, as the bill impact every healthcare provider, regardless of industry.

Shares of for-profit hospital chains like Tenet Healthcare and HCA rose following the decision, with Tenet up 8% by 11:45 a.m. EDT, to $5.36. Private equity-backed HCA’s stock was up 9%, to $29.06. Another hospital operator Community Health Systems saw it’s equity jump 10%, to $28.08, over the same time period. Those hospitals would have been hard hit by the cost of caring for uninsured patients if a mandate to buy coverage under health reform was not upheld.

As for the debt, the 6.25% notes due 2018 backing Tenet traded up a quarter of a point following the ruling, to 105.5, according to trade data. Community Health 8% notes due 2019 changed hands half a point higher, at 106, the trade data show.

In the secondary loan market, loans backing Community Health and HCA, market bellwethers for healthcare debt, were stable following the ruling. For example, Community Health’s non-extended term loan due 2014 (L+225) was unchanged, pegged at 98.5/98.75, while HCA’s term loan B-3 due 2018 (L+325) was unchanged from earlier in the week, quoted at 96.625/97.125, sources said.

Importantly, the 2.3% medical-device excise tax included in ACA also survived the ruling. Since debt backing medical-device companies had already accounted for the change, there was little movement in those names, according to sources. The tax is levied on the total revenue of a company and is set to start Jan. 1, 2013.

And the bidding process for Medicare reimbursements will proceed as previously planned. The reimbursement will go forward as implemented by the Centers for Medicare and Medicaid Services whereby suppliers compete to become Medicare contractors for certain items in specific areas by submitting bids. The first round started in Jan. 1, 2011 in nine different areas around the country. So the next round will include 91 more areas as mandated by the ACA.

Given that the companies impacted were already expecting the decreases in reimbursements regardless of the decision, debt of most medical-device or product manufacturers and long-term healthcare providers has remained stable, including Rotech Healthcare, Apria Healthcare Group, Diagnostic Imaging Group,Group Health Cooperative, Hologic, Medtronic, Oncure Medical, and Vertellus Specialties.

While this decision wasn’t what the whole market expected, the prevailing views reflected the impact of the bill being upheld, according to a source, now it just becomes a waiting game with the election. – LCD Staff reports

The union representing pilots of American Airlines will send the company’s most recent contract offer to its members for a vote, the Allied Pilots Association announced late yesterday.

In deciding to send the offer to its members by a vote of nine to seven, the APA’s board deemed the airline’s latest offer a “tentative agreement,” reversing its decision last week rejecting the contract.

As a result of the decision, Manhattan bankruptcy court judge Sean Lane will further delay issuing a decision on the company’s motion under Section 1113 of the Bankruptcy Code to reject its collective bargaining agreements with its three unions – the APA, the Association of Professional Flight Attendants, and the two groups of the Transport Workers Unions with which it has not yet come to terms (five groups representing union members have already reached a deal with the airline).

The Section 1113 decision, which was scheduled to be delivered tomorrow, is now slated for mid-August, although the precise date is somewhat unclear. The APA said in an online message to its members yesterday afternoon that the decision would come Aug. 8, but a subsequent statement from the union’s president, Capt. David Bates, saying that the pilots’ vote would be completed on Aug. 8 and the decision would come a week later, on Aug. 15, looks to be more on target.

Regardless of the precise new deadline for Lane’s decision, American said it would “use the additional time wisely to reach agreements with APFA and TWU on the two remaining agreements rather than wait on the judge’s decision.” American said it had talks scheduled with both the APFA and TWU for “early next week.”

As reported, the APFA has already announced that it is scheduled to meet with American on July 3, 4, and 5.

Pilots to be American largest stockholder
The 13.5% equity stake in a reorganized American that pilots are slated to receive under the company’s latest offer loomed large in APA’s decision.

“Our advisers focused on the significance of the provision that gives APA a claim in the form of a 13.5% equity stake in a newly reorganized American Airlines,” Bates told his fellow pilots. “Our advisers stated that a 13.5% equity stake should make APA the largest equity holder in the company. As a result, we would be able to influence key decisions from our seat on the unsecured creditors’ committee that will take place for the balance of restructuring such as the makeup of the reorganized airline’s board of directors and other key strategic considerations.”

What’s more, Bates added, “Our advisers also noted that if a merger between American Airlines and US Airways takes place – whether during restructuring or after AMR emerges from bankruptcy – the value of that equity stake should increase, since the overall enterprise value would go up through the combination of the two airlines.”

Bates’ reference to a merger of American and US Airways “after AMR emerges from bankruptcy” is significant. As widely reported, American’s three unions all have reached agreements with US Airways premised on an acquisition occurring in the context of the American’s Chapter 11 process. If American and its unions are able to reach labor agreements, it would clear the way for the company to develop and confirm a standalone reorganization plan.

‘Clear improvements’
Beyond the equity stake, the APA board’s acceptance of the airline’s last offer bodes well for the prospect of American reaching agreements with its other unions, as well.

In urging pilots to vote for the latest offer, Bates said, “It’s also important to recognize that the tentative agreement contains provisions that represent clear improvements compared with management’s 1113(c) term sheet, including enhanced pay increases; preservation of our duty rigs; some furlough protections; limits on Scope; an early-opener provision at year four; and indexing to Delta, United, and US Airways pay rates at year three.”

In contrast, Bates said, waiting for the court to issue a ruling on whether the company could reject its collective bargaining agreements contained “substantial downside risk,” specifically citing the “legal ‘gray area’ that we would enter.” Noting the less favorable terms that could be imposed on workers once if the company is able to reject its collective bargaining agreements, Bates noted, “Negotiations could continue indefinitely as we exit bankruptcy and enter back into protracted…bargaining trying to renegotiate a [collective bargaining agreement] from an abrogated position.”

As reported, American was able to sweeten its offer to the pilots by targeting cost saving of 17%, versus its earlier target of 20%, while still meeting its financial goals – a development that American attributed, at least in part, to “recent revenue improvements.”

Further, American has suggested that the potential benefits of those new, reduced targets will be extended to its employees across the board.

As also reported, the APFA said in a statement yesterday that the key to a deal is whether American “is willing to move off the ‘ask’ – meaning if they are willing to reduce the amount they claim to need in bankruptcy ($230 million).”

While it is unclear whether the Airline’s new flexibility will be enough to satisfy the APFA, it is clearly a step in the right direction. – Alan Zimmerman

The bankruptcy court overseeing the Chapter 11 proceedings of Prince Sports on June 22 approved the adequacy of the company’s disclosure statement, following the fashioning of a new deal that enhanced recoveries for unsecured creditors and gained the support of the unsecured creditors’ committee for the proposed plan.

A plan confirmation hearing is scheduled for July 27.

As reported, the tennis racquet manufacturer filed for Chapter 11 on May 1 in Wilmington, Del., with a proposed reorganization plan that would hand the company’s equity to licensing company Authentic Brands Group, which had acquired the company’s secured debt. Under the proposed plan, Authentic would discharge all of Prince’s $67.2 million of secured debt in exchange for 100% of the new equity interests in the reorganized company. Authentic also agreed to provide the company with a $2.5 million DIP facility.

The odd class out of this plan, however, was unsecured creditors, comprised of roughly $13.8 million of primarily trade claims, which under the initial plan would have received a recovery valued at just 2.7%. Following its appointment, the unsecured creditors’ committee in the case signaled its opposition to the proposed plan. Among other things, the panel objected to the company’s proposed DIP facility, as well as to a proposed licensing agreement for which the company was seeking approval that was a key part of the company’s reorganization, calling it a “private and uncompetitive deal.”

At a June 19 hearing on the disclosure statement, the company and the creditors’ committee reached a global settlement on the new plan, according to court filings.

According to an amended reorganization plan and disclosure statement dated June 21 comprising that global settlement, the company increased the recovery to unsecured creditors to 29%. The company agreed to contribute $4 million in cash to fund a liquidation trust with the authority to pursue potential avoidance actions in the case, but unsecured claims holders could opt for a pro rata share of the funding in lieu of pursuing the avoidance claim. Ultimately, the apportionment of the $4 million between the financing of the liquidating trust and the payment of settled unsecured claims will depend upon the percentage of claims that opt to settle and a determination to be made by the unsecured creditors’ committee, the disclosure statement and reorganization plan show.

Meanwhile, the bankruptcy court also approved the $2.5 million DIP facility in the wake of the settlement. – Alan Zimmerman

The bankruptcy court overseeing the Chapter 11 proceedings of Buffets Restaurant on June 27 confirmed the company’s proposed reorganization plan, according to a court order filed in the case.

The confirmation order did not indicate when Buffets would emerge from bankruptcy, but as reported, the company’s DIP facility requires it to exit Chapter 11 by July 16.

The confirmation was expected. The company’s disclosure statement was approved April 30, and a confirmation hearing was initially set for June 13, but postponed to today for undisclosed reasons.

As reported, the company had reached an agreement with lenders holding 83% of its senior debt prior to its Chapter 11 filing in January on a plan under which lenders would receive 100% of the reorganized company’s new common stock. That plan, however, provided no recovery for unsecured creditors, who opposed the proposal. On April 20, shortly before the hearing on the disclosure statement, the company amended its plan to provide for a litigation trust to pursue potential avoidance actions in the case. That trust would be funded by the company with $4 million in cash, which would be used both to pay the trust’s expenses and for a cash distribution to creditors (see “Buffets amends plan to provide recovery for unsecured creditors,” LCD, April 25, 2012).

Following that, the unsecured creditors’ committee dropped its opposition and said it fully supported the proposed plan.

A stronger market is back in place in the high-yield secondary, though volumes remain light. Eyes are on the new-issue calendar, which has grown to nine deals totaling $4.2 billion including crossover credits, marking the second largest weekly supply in six weeks – only trailing $5.7 billion last week – as underwriters race towards the second-quarter close.

Benchmarks are higher. Chrysler Group 8.25% notes due 2021 are trading roughly half a point stronger today, at 102, and Chesapeake Energy 6.775% notes due 2019 added a quarter of a point, to 97/97.5, according to sources and trade data. ATP Oil & Gas 11.875% notes due 2015, as well, edged up a quarter of a point, to 45.25/46.25, sources note.

The unfunded HY CDX 18 index edged up three sixteenths of a point, to 95/95.25, according to Markit. Although that’s off three eighths of a point week over week, it’s up significantly from the series low close 3.5 weeks ago.

New issues are outperforming. Sonic Automotive 7% notes due 2022 have advanced to either side of 103 today, from 102.5 yesterday and 99.11 at offer Monday, sources said. SM Energy 6.5% notes due 2023 are pegged at 100.5/101, versus par issuance Tuesday, while P.F. Chang’s 10.25% notes due 2020 are at 103/104, versus par issuance Friday, sources note.

As mentioned, eyes are on the forward calendar, which holds nine credits for $4.2 billion of supply. Details are available online to subscribers and updated in real time at LCD U.S. HY Forward Calendar. – Matt Fuller

The Association of Professional Flight Attendants said today it would take another shot at negotiating a new labor agreement with American Airlines.

The APFA said it would meet internally on Monday, July 2, and bargain with the airline on July 3, 4, and 5.

In a hotline update today to members from Leslie Mayo, the APFA’s national communication coordinator, the union maintained that it “has said all along that if [American Airlines] is willing to move off the ‘ask’ – meaning if they are willing to reduce the amount they claim to need in bankruptcy ($230 million), APFA is willing to work toward achieving an agreement.”

That ray of hope for a deal may be the result of the latest sweetened offer American made to its pilots last week, which the airline said was made possible by its targeting cost saving of 17%, versus its earlier target of 20%, a development that American attributed, at least in part, to “recent revenue improvements” (see “Ruling delayed on American labor pacts as pilots mull latest offer,” LeveragedLoan.com, June 22, 2012).

Still, the APFA, which is among the three American unions that have reached an agreement with US Airways premised on an acquisition of American by US Airways to bring the company out of Chapter 11, also said it was “return[ing] to the table knowing that the best possible chance for our company’s survival will be with a pre-exit merger with US Airways. We negotiate with that goal in mind.”

Meanwhile, as previously reported, the board of the Allied Pilots Association is scheduled to meet today to reconsider whether to send the aforementioned sweetened offer to its members for a vote. As reported, the APA’s board decided against doing so last week, explaining that some board members felt that they lacked sufficient time and information to evaluate the offer. At the time, however, the APA board was up against a June 22 deadline, the date on which the Manhattan bankruptcy court was scheduled to rule on the company’s Section 1113 motion to reject its collective bargaining agreements.

But the parties bought more time when the union asked Judge Sean Lane to delay issuing his ruling, which he is now scheduled to hand down this Friday, June 29, clearing the way for further examination, discussion, and reconsideration of the offer.

Yesterday, the APFA said that if the pilots union decides to send the airline’s latest offer to membership for a vote, “it is possible that the bankruptcy judge may delay his decision on the 1113 motion until the ratification period is over.” That, in theory, would give the APFA and, potentially, the airline’s third union, the Transit Workers Union, a bit more time to reach their own deals before their current work conditions are possibly subject to rejection and change by the company, reducing their negotiating leverage and, potentially, further poisoning an already contentious atmosphere.

This latest round of talks grew out of court-ordered “mediated negotiations” in the wake of the completion of the Section 1113 hearing last month. The initial rounds of mediation, held earlier this month, however, between the company and the APFA and the TWU, failed to produce an agreement or meaningful progress. – Alan Zimmerman